What are Cost Cutters Family Hair Salon's options when responding to a franchisee's offer to sell?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
ntil COST CUTTERS and the FRANCHISEE agree in writing that the negotiations have terminated, whichever comes earlier. If COST CUTTERS waives its right to purchase, then the FRANCHISEE will have the right to complete the sale or transfer of the Business Assets according to the terms set forth in the written notice to COST CUTTERS; however, any such sale, transfer or assignment to a third party is expressly subject to the terms and conditions set forth in Article 10 of this Agreement. If the FRANCHISEE does not consummate the sale to a third party upon the terms and conditions previously presented to COST CUTTERS in writing, but negotiates a sale price with a third party that is lower or on different terms than the stated price or terms presented to COST CUTTERS, then the modified offer must be recommunicated or made to COST CUTTERS by the FRANCHISEE. COST CUTTERS will give the FRANCHISEE written notice within fifteen (15) business days thereafter which will state whether or not it is interested in purchasing the Business Assets according to the proposed new terms.
- 11.2 COMPLIANCE WITH AGREEMENT. The FRANCHISEE'S obligations under this Agreement including, but not limited to, its obligations to pay the Continuing Fees, the Advertising Fees and to operate the Cost Cutters Businesses under the applicable Franchise Agreements, will in no way be affected or changed because of COST CUTTERS' nonacceptance of the FRANCHISEE'S written offer to purchase the FRANCHISEE'S interests or assets, and, as a consequence, the terms and conditions of this Agreement will remain in full force and effect. COST CUTTERS' decision not to exercise the rights granted to it pursuant to this Article will not, in any way, be deemed to grant the FRANCHISEE the right to terminate this Agreement and will not affect the term of this Agreement. Moreover, if COST CUTTERS does not exercise the rights granted to it pursuant to this Article and if the FRANCHISEE complies with Article 10 and sells or otherwise disposes of its interests or assets to a third party, then both the FRANCHISEE and the third party purchaser will be required to comply in all respects with the terms and conditions of this Agreement, and the sale of the interests or assets will not relieve the FRANCHISEE of its obligations under this Agreement. Any sale, transfer or assignment of the business or assets of the FRANCHISEE'S salon development business that does not include assignment of this Agreement to the transferee will constitute a wrongful termination of this Agreement.
- 11.3 TRANSFER OF AGREEMENT TO CONTROLLED ENTITY. If the FRANCHISEE is an individual or a partnership, then the FRANCHISEE will have the right to assign and transfer this Agreement to a corporation, limited liability company or other entity in which the FRANCHISEE owns and controls at least fifty-one percent (51%) of the entity's issued and outstanding capital shares, membership interests or ownership interests ("Ownership Interests") pursuant to Article 10.2 of this Agreement.
Source: Item 23 — RECEIPT (FDD pages 76–439)
What This Means (2024 FDD)
According to Cost Cutters Family Hair Salon's 2024 Franchise Disclosure Document, if a franchisee offers to sell their franchise assets, Cost Cutters Family Hair Salon has the option to either accept or reject the offer. If Cost Cutters Family Hair Salon does not accept the franchisee's offer, the franchisee is still obligated to comply with the terms of the franchise agreement, including paying continuing fees and advertising fees, and operating the Cost Cutters Family Hair Salon business under the franchise agreement. Cost Cutters Family Hair Salon's nonacceptance of the offer does not grant the franchisee the right to terminate the agreement or affect its term.
If Cost Cutters Family Hair Salon chooses not to exercise its right to purchase the franchise and the franchisee sells to a third party, both the franchisee and the third-party purchaser must comply with the terms and conditions of the agreement. The sale does not relieve the original franchisee of their obligations under the agreement. Any sale, transfer, or assignment of the business or assets that does not include the assignment of the agreement to the transferee will be considered a wrongful termination of the agreement.
If the franchisee fails to provide written notice of the asking price or if Cost Cutters Family Hair Salon and the franchisee cannot agree on the price, either party can demand that the price be determined by arbitration, following the American Arbitration Association rules. The arbitrator will determine the fair market value of the franchise assets, excluding any value for goodwill associated with the Cost Cutters Family Hair Salon name or going concern value, as the purchase right applies after the agreement has expired or been terminated. If the arbitrator cannot determine the fair market value, the assets will be valued at book value (cost less depreciation). Cost Cutters Family Hair Salon has the right, but not the obligation, to purchase any or all of the franchise assets for cash within fifteen business days after the fair market value is established by the arbitrator in writing.